Economies in the Middle East and Africa experienced a downturn in 2020 after continuous expansion since 2015. The COVID-19 pandemic, coupled with slumping oil prices, has disturbed countries’ economic development and distorted public finances. Nevertheless, global recovery over 2021-2025 will boost the region’s hydrocarbon exports and drive economic rebound. Furthermore, economic reforms and growing intra-regional cooperation are set to introduce changes to the region’s economic structure.
Economic growth in the Middle East and Africa experienced a downturn in 2020 after continuous expansion since 2015. The COVID-19 pandemic has frozen economic development, weakened industrial activity as well as disrupted global supply chains. The COVID-19 shock on the oil sector was especially worrying with many countries in the region relying on hydrocarbon exports. With the pandemic slowly receding thanks to vaccination campaigns in the region, the region’s economy is expected to post a substantial rebound over 2021-2025, driving the economy’s return to normality.
Economic development in the Gulf countries is expected to be increasingly based on sustainable growth of manufacturing and services sectors, as opposed to a hydrocarbon exports-based model. The ending of the era of internal combustion engine (ICE) vehicles, rising renewables implementation in energy mix around the world are driving economic structure change in the Gulf countries via increasing industrial investments, liberalisation of economies, female empowerment and taxation system amendments.
The region’s economies are increasingly seeing benefits of intra-regional cooperation to create a harmonised market. The most notable example of such collaboration is the creation of the African Continental Free Trade Agreement (AfCFTA), which commenced in 2021. The trade bloc is set to facilitate manufacturing investments, intra-regional trade via removal of trade tariffs and single market creation.
The COVID-19 pandemic introduced a huge economic challenge for countries in the Middle East and Africa in 2020. Countries’ public revenues slumped, while expenditure growth gained pace due to increased health spending and economic revival policies. The state of public finances is set to be haunted by increased debt servicing costs and weak local currencies, which will continue causing recovery sustainability issues.
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